by admin | May 29, 2020 | Equity News, Mortgage News
The Wealth and Assets Survey of Great Britain is conducted by the Office for National Statistics (ONS) every two years. The latest survey covers the period April 2016 to March 2018. Here is a quick review of some of its key findings along with a guide to its limitations and its real-world implications.
Overall property debt in the UK is on the rise
According to the Wealth and Assets Survey, total property debt in the UK is now £1.16trn. This figure is a 3% rise as compared to the last survey. The number of households with property debt also increased from 9.1M to 9.2M (approximately 1%) and the median household property debt increased by five per cent to £96,000.
NB: In the context of the Wealth and Assets Survey, the term “property debt” covers both mortgages and equity release secured on properties. This is technically accurate since the “lifetime mortgage” format of equity release is a debt secured against a property. It can, however, be different from most forms of debt in that there may be no repayments required during the borrower’s lifetime.
Property debt is concentrated in the middle wealth bands
The Wealth and Assets Survey placed each of its respondents into one of ten wealth bands. The top band comprised the wealthiest 10% of households while the bottom band was the poorest 10%. The survey found that in deciles four to seven, 45% to 54% of households carried property debt, whereas only two per cent of households in the lowest decile had property debt. The lower deciles were more likely to have financial debt (non-property-related debt).
Total financial debt rose by 11% or £12bn to £119B. This was mostly due to hire purchase and student loans. It should be noted, however, that student loan repayments are adjusted depending on income which makes them somewhat different to other forms of debt. In principle, it also means that repayments should always be manageable even if an individual’s financial circumstances change.
Four per cent of households were identified as having problem debt, although, perhaps surprisingly, this figure does not include mortgages in arrears.
The limitations of the Wealth and Assets Survey
The Wealth and Assets Survey does not split out equity release from mortgages, nor does it split out different kinds of mortgages e.g. investment versus residential or repayment versus interest-only. Likewise, the survey only expresses the amount of debt held by any given household. It does not express this data in comparison to the value of the property.
Last but by no means least, this Wealth and Assets Survey is a survey of UK households. It, therefore, does not include property debt held by companies as this is, by definition, not owned by a private individual even if they are the sole owner of the company in question. This means that it does not capture data relating to buy-to-let investors who work through a limited company.
Full details on the Wealth and Assets Survey and its methodology are available on the ONS website.
The practicalities of mortgage debt
While the Wealth and Assets Survey provides an interesting snapshot of property debt in the UK, it does not give any great degree of insight as to what it means in practical terms for each household. For example, although it collects data on property debt for each wealth band, it does not collect data on the percentage of a household’s income which is used to service the debt (which, in some cases may be none, since the survey counts equity release as property debt), or how much equity they have in the property.
Your property may be repossessed if you do not keep up repayments on your mortgage
For equity release products we act as introducers only. Equity release refers to home reversion plans and lifetime mortgages. To understand the features and risks ask for a personalised illustration.
The FCA does not regulate some forms of buy to let mortgages
by admin | May 15, 2020 | Equity News, Investment, Mortgage News
The (hopefully) short-term impact of the Coronavirus, although undeniably brutal, may turn out to be nothing compared to the long-term economic damage it could cause. Quite simply, people may find that their lives have been saved but their livelihoods have been lost. The government is clearly aware of this and is working hard to keep the UK’s economy moving insofar as it can – and it is placing the financial services industry to come on board with its plans.
Keeping the money flowing
The UK government has pledged to pay 80% of the salaries of all employees furloughed due to the Coronavirus. Separately to this, it has pledged to provide government-backed loans to businesses. When the loan scheme was initially announced it was overwhelmed with applications, but relatively few loans were issued. This fact was blamed on the restrictive rules and the government is believed to be looking at revising the scheme. It’s therefore advisable to keep an eye on the news for updates. The new “Bounce Back” loan has just been released aimed and small businesses, offering loans of a quarter of turnover up to £50,000 over 5 years with 0% interest on the first twelve months and no repayments for twelve months.
It has further pledged to help the self-employed or at least some of them. As has already been pointed out, there are significant cracks in this help. In particular, it does nothing for those who became self-employed during the 2019/2020 financial year nor for those people who are part employed and part self-employed but who earn less than 80% of their income from self-employment.
Theoretically, these people can fall back on the Universal Credit system. Unfortunately, this has been plagued by problems and if reports are to be believed is struggling to cope with the sudden upsurge in applications. It’s also unclear how the minimum income floor will be assessed for people in non-standard situations, like the newly self-employed or the part-employed/part-self-employed.
It’s also worth noting that the impact of the loss of income experienced by these individuals has the potential to spread far beyond the individuals themselves, even if they aren’t breadwinners for a family. As a minimum, it has the potential to impact the income of landlords and companies which provide essential, basic services such as utilities. Under normal circumstances, non-payers might be evicted and/or have their utilities cut off but right now that would be politically-sensitive, to put it mildly.
Finding other ways to help
The government seems to be aware of this and looks to be trying to address the problem from both ends. In other words, if people are falling through the cracks of the income-support measures, then the government can still help them by reducing their expenses. It has to act with a little caution here, to avoid causing problems along essential supply chains. It can, however, certainly ask, or potentially force, certain industries to adapt their behaviour to contribute to the common good and the financial services industry is clearly in its sights.
At the end of March, for example, the Bank of England’s Prudential Regulation Authority contacted banks to make it clear that it expected them to cancel dividend payouts and bonuses to staff. It took a softer line with insurers, just advising them to “think carefully” before making payouts. Another regulator, the FCA has also been communicating with the banks to propose emergency measures to help struggling borrowers.
It has proposed that customers with arranged overdrafts should be allowed to use them interest-free for up to three months and that customers with loans and/or credit/store card debt should be granted a repayment freeze also for up to three months. As with many of these emergency measures, however, they answer some questions but raise others.
For example, if borrowers are in a situation where they are paying more in interest (fees and charges) than they are in capital repayments, taking a payment holiday could hurt them over the long term unless their lender also agreed, or was forced, to freeze interest on the debt. Some people might see this as a very reasonable action on their part given the help the industry received in 2008.
Your property may be repossessed if you do not keep up repayments on your mortgage.
by admin | May 3, 2020 | Mortgage News
Stamp duty may not be the most exciting topic in the housing market, but it can make quite a difference to how much you end up paying for your home. Here’s a brief guide to what it is, how it works, what that means in practice and what the future might bring.
Stamp duty is actually a shorthand for different taxes
In England and Northern Ireland, Stamp Duty means Stamp Duty Land Tax and there is an online calculator here. In Wales, it means Land Transaction Tax and there is an online calculator here. In Scotland, it means Land and Buildings Transaction Tax and while this in no official calculator, you can find the current rates listed here.
Stamp duty works along essentially the same lines in all parts of the UK, but the bands are different (plus they are subject to change), hence you always need to check the rates in force at the time of your intended purchase and in the location of your intended purchase.
You should also be aware that different rates of tax may apply depending on what kind of purchase you are making, e.g. a first home, a main home (but not your first home) or an additional home.
How and when you pay stamp duty
From a buyer’s perspective, the process itself is actually quite easy. You just send the money to your solicitor and they send it on to HMRC when the property completes.
What stamp duty means in practice
In simple terms, you need to work out if you are due to pay stamp duty (if you are a first-time buyer you may not be) and if you are then you need to work out how you are going to pay it.
Basically, the two approaches are either to add it to your mortgage or to pay it out of your cash savings. In either case, you would need to meet the appropriate lending criteria regarding Loan To Value ratio (LTV) and affordability. You would also have to accept the fact that either way you are going to impact your LTV ratio and this may impact your ability to get the very best deals.
Having said that, while mortgages are sold as long-term products, there is absolutely nothing to stop you re-mortgaging at a later date when you have built up equity in your home and this fact may be enough to prevent you from needing to as it may encourage your lender to agree to negotiate an improved rate in acknowledgement of your improved situation (re the LTV ratio and possibly increased income as well).
For the sake of completeness, the example of stamp duty is a good reminder to think about all the possible transaction costs involved in buying a home and the importance of making sure that you have funds to pay them.
The future of stamp duty
Interestingly, there are proposals to switch stamp duty to a tax paid by the seller.
The argument behind this change is that people who are moving from smaller homes to larger ones would pay stamp duty on the smaller home (they are selling) rather than the larger one they are buying, while people moving into smaller homes will be paying less for the property they are buying.
This may sound good in theory, however, it’s hard to see what would deter sellers of any description from simply incorporating the cost of the stamp duty into the sales price of the property. If they did so, then, rather ironically, the buyer (who is the person ultimately paying for the property) might end up paying more as the property could be pushed into a higher stamp duty band, so you’d effectively be paying stamp duty on the stamp duty.
Your property may be repossessed if you do not keep up repayments on your mortgage.
On clicking the above links you will leave the regulated site of Coombes & Wright Mortgage Solutions Limited. Neither Coombes & Wright Mortgage Solutions Limited, nor Sesame Ltd, is responsible for the accuracy of the information contained within the linked site.
by admin | Apr 25, 2020 | Equity News, Investment, Mortgage News
Our financial situation can be a bit like a spider’s web. Decisions taken in one area of our financial lives can have implications for other areas of our financial life. In some cases this is obvious (if you spend money, you can’t also save it), in other cases, however, it can be much less obvious. For example, any decisions around equity release could have subsequent implication for anything from estate planning to access to means-tested benefits. With some people considering this as a way to help their families through coronavirus, here is some useful information.
The basics of equity-release
In principle, equity-release simply means tapping into the value of your home. In practice, it can mean different things to different people. In fact, it can mean different things to the same person at different stages of their life.
For younger people, equity release may mean increasing the loan-to-value ratio on their home. Essentially, they are swapping some of the equity they already own for cash in hand, but do intend to make monthly repayments of the loan principal until it is ultimately cleared.
For older people, equity release may mean swapping some or all of the equity in their home for a lump sum or income, without committing to making any repayments during their lifetime. The repayments are made out of their estate after their death, or when they move into permanent care and the house is sold.
Both forms of equity release can have significant implications and so it is strongly recommended to get professional advice before entering into either. Here are some ways they could impact your finances.
Inheritance
This is perhaps the most obvious way in which equity release could impact your finances and/or the finances of your estate. On the one hand, reducing the amount of equity you have in your home could lower the value of your estate and hence the amount of inheritance tax which is ultimately payable on it. On the other hand, if your heirs wish to keep the property, then it may result in them having to pay more to do so.
Tax
Tax laws can and do change and so it’s always advisable to check the rules in place at the time of taking out a financial product or service and to familiarise yourself with any changes which are likely to be in the pipeline. As a rule of thumb, however, if you have any income or assets there’s a good chance that HMRC is going to want to claim a share of them somewhere along the line. For example, even if a lump sum is tax-free, if you put it in a bank, then you may end up paying tax on the interest.
Investments
If you are planning on releasing equity from your home via a standard, repayment mortgage in order to fund the purchase of investments, then you have to be aware that the performance of an investment is not guaranteed whereas your mortgage repayments are an unbreakable commitment assuming you want to keep your home.
If, however, you are planning on releasing equity from your home via a lifetime mortgage, in other words, one in which repayments are only made after your death, then the situation is a little different. You are not at risk of losing your home, but you may be at risk of making a sub-optimal financial decision, which could leave you or your heirs worse off. This is definitely a situation in which professional advice is to be recommended in the strongest possible terms.
Pensions and benefits
Pensions are not currently means-tested, but should they become so then any funds received through equity release could impact your ability to claim them. As it currently stands, they may impact your ability to claim means-tested benefits. If you are considering the possibility of releasing equity from your home to build up your pension pot then, again, getting professional financial advice is strongly recommended.
For Equity Release we act as introducer only
Equity release refers to home reversion plans and lifetime mortgages. To understand the features and risks ask for a personalised illustration
Your home may be repossessed if you do not keep up repayments on your mortgage
For inheritance tax planning (IHT), estate planning, tax planning, investments and pensions we act as introducer only
The FCA does not regulate some forms of tax planning, inheritance tax planning and estate planning
by admin | Apr 19, 2020 | Mortgage News
The havoc being wreaked by the Coronavirus is not being contained within the walls of hospitals or even with the walls of people’s homes. It’s spreading into all aspects of life in the UK and hurting people emotionally and financially even if it is not impacting them physically. While there is little the government can do about the virus itself, at least for the time being, it is trying to help people manage their finances during this difficult time and, in particular, to allow them to stay in their own homes.
Help for renters
As of 26th March all proceedings for, and enforcement of, possession orders has been suspended for a period of 90 days. Also since 26th March landlords have been obliged to provide tenants with three months’ notice in advance of starting eviction proceedings. This measure is due to last until 30th September. Both measures could potentially be extended if necessary. Landlords themselves can apply for a payment holiday on their mortgage in the same way as people with residential mortgages.
Help for homeowners with mortgages
The Bank of England cut interest rates on 11th March (from 0.75% to 0.25%) and then again on 19th March (from 0.25% to 0.1%). This may not be great news for savers, but it could help borrowers who can “just about” make ends meet.
Borrowers who have been able to make ends meet (i.e. who are up-to-date with their payments) but who have experienced a loss of income due to the Coronavirus, can contact their lender and request a payment holiday of up to three months. They will need to self-certify that their request is due to being impacted by the Coronavirus.
Help for borrowers
At the moment, help for borrowers is largely being provided by the lender themselves, which means it’s variable depending on what product you have and with which lender. The Financial Conduct Authority (FCA) is, however, attempting to bring some level of standardization to what is on offer. They have contacted lenders with the following suggested changes:
Customers who have already been financially affected by the coronavirus should be able to use arranged overdrafts on an interest-free basis for up to three months and all overdraft customers should be left no worse off than they would have been prior to the recent changes made to overdraft pricing.
Customers facing financial difficulties as a result of coronavirus should be offered a payment holiday for loans and credit cards. This should last for up to three months.
Customers who access these temporary measures should not see their credit rating adversely impacted.
While the FCA’s list is phrased as “proposals”, it’s rather hard to see how lenders could refuse, particularly since they could probably take it as read that these proposals could be turned into emergency legislation if they did. They could also reasonably expect a sharp backlash against their business given that the industry benefited from a taxpayer-funded bailout in 2008.
That said, the FCA’s proposals, while undeniably welcome, do raise further questions, particularly with regard to those in persistent debt. The FCA has already advised that credit card lenders should refrain from suspending the cards of people who’ve been in persistent debt for more than 36 months, which, in principle, offers them a lifeline. In practice, however, it could lead to them having to pay back even more interest, thus placing them in an even worse position further down the line.
Similarly, if people in persistent debt take payment holidays, but the interest continues to be applied to their account, then they could also end up substantially worse off, especially if they are near their credit limit and the interest pushes them over it so that further fees are applied, if not immediately, then later on.
The FCA does not regulate some forms of buy to let mortgages
Your property may be repossessed if you do not keep up repayments on your mortgage
by admin | Apr 3, 2020 | Mortgage News
Although the budget was dominated by the Coronavirus, it actually contained a much broader range of content.
With the situation as it is, some of this may change, but here is a quick guide to what it means for mortgages and property.
Interest rates have been cut from 0.75% to 0.25% (and have since been cut again to 0.1%)
Strictly speaking, this decision was taken by the monetary policy committee of the Bank of England, rather than the Chancellor Rishi Sunak, but the announcement was made on the same day and also influenced by the “economic shock” caused by the Coronavirus. This decision obviously has implications for mortgages and property, but as yet it’s unclear what they will be.
On the face of it, cutting interest rates should be good for borrowers, which includes anyone who has a mortgage and, in principle, should add stimulus to the property market. Certainly, anyone who currently has a tracker mortgage should see their repayments go down per their lender’s schedule for implementing changes to the rate charged. Fixed-rate mortgages, however, will stay as they are, basically, that’s the gamble you take with them.
In principle, if you already have a fixed-rate mortgage then you could take this as an opportunity to take out another fixed-rate deal. In practice, however, this may not be as straightforward as it sounds. First of all, it’s anyone’s guess how long this rate will last, which means that lenders are likely to take a cautious approach to offering fixed-rate mortgages at a rate which could leave them very exposed when interest rates go up. Secondly, you would have to go through the full remortgaging process.
Low-interest rates can feed into high inflation
If low-interest rates weaken the Pound, then imports will become more expensive. This could lead to higher prices for key consumer products, including food.
In principle, a weak pound could benefit exporters and the inbound tourism industry, but in practice, the Coronavirus (plus Brexit) could negate them.
High inflation is not necessarily totally bad news for homeowners, especially when it occurs alongside low-interest rates. If it increases the paper value of a property, it may make it easier for homeowners to remortgage at more attractive rates (or to get a better deal on equity release) but this, of course, does assume that the borrower’s own financial circumstances are good. In other words, that they meet the affordability criteria and can realistically service their mortgage.
There is a commitment to spending on infrastructure
Although HS2 was given the go-ahead before the budget, Chancellor Rishi Sunak had plenty of other infrastructure announcements to make. Probably the headline announcement is that he will commit £600bn to the improvement of roads, rail, broadband and housing by the middle of 2025. There will be a £1bn fund to remove all unsafe combustible cladding from all public and private housing higher than 18 metres. This has been dubbed the “Grenfell fund” and while some might criticize the government for taking so long, at least it has acted now, so credit where it is due.
There will also be £27bn for motorways and other arterial roads, including a new tunnel for the A303 near Stonehenge and £2.5bn to fix potholes and resurface roads in England over five years. Infrastructure improvements tend to boost the value of property in the vicinity, so all this is likely to be good news for homeowners. Property owners in rural areas may be particularly happy to hear that the Chancellor has committed £5bn to getting gigabit-capable broadband into the hardest-to-reach places.
There will be a 2% stamp duty surcharge on international property buyers
As of April 2021, anyone not domiciled in the UK will pay an extra 2% stamp duty if they buy a property in England or NI.
Your property may be repossessed if you do not keep up repayments on your mortgage
Recent Comments